The Future of Decentralized Social Media and Ad Markets
I wanted to start by saying that over the past week, I’ve become an enormous fangirl of the Decentralized Social Blockchain, also known as DeSo, run by the fine folks over at deso.org. However, there’s one opinion I see in their writing which I think needs examined more closely, their view on advertising.
It’s becoming common to hear Web 3 enthusiasts talking about their favorite projects and ideas. They’re worth listening to. I’d argue that this wave of technological innovation will be equal or greater than any other we’ve experienced so far in history. There are so many promising opportunities everywhere I look nowadays. That makes it easy to overlook some important ways that these opportunities might work together. For now, I have two in mind, decentralized social networks and decentralized ad markets. Let’s take a closer look at what these two pieces can do for us when used together.
Current State of the World
The current state of social media and ad markets is a depressing tangle of monopolies. They’re significantly advanced technologically, which makes them not easily understood by non-tech people. So here’s a brief explanation for how things currently work for the non-techies out there. (Skip to the picture of the cat if you know this stuff)
In every major social network you probably use today, YOU are the product. Specifically, your personal information, habits, hobbies, conversations, emails, texts, personality, zip code, gender… everything about you is analyzed by some of the most advanced AI and machine learning algorithms ever created. The purpose? A few reasons, but primarily it’s to figure out how to maximize the social network’s revenue from you. In some cases, the revenue is directly targeted. In other cases, the goal is to maximize how much you interact with the network, which then generally has a positive effect on revenue. It’s not really a secret that this monetization largely comes in the form of advertisements in your social media apps, but I find that very few people actually understand that this data also determines which ads show up in OTHER apps and websites.
There’s a sophisticated market built into your social media where advertisers can bid for your views, clicks, and other interactions. Ad markets let advertisers create campaigns that target specific demographics. They can specify how much they want to spend to reach very specific audiences. For example, I might create an ad campaign that says, I’m willing to spend $2 per 1000 views of my video advertisement, but only for viewers near New York City with mobile devices. Now imagine millions of campaigns created this way. So the next time you start scrolling through your social media or browsing a website when the servers will decide it’s time to show you an ad, they dig into the heap of campaigns and figure out which ad is most profitable to show you. This is a very simple example and it gets far more complicated, but all this magic happens on ad exchanges.
Current Monopolies
Ok, so now we have some basic idea what an ad market looks like. An open market sounds like a good thing, right? Well, there are a couple problems. First, the vast majority of ads online go through this little arrangement.
Google, Facebook brokered illegal deal to cement dominance in ad market: Lawsuit
The dominant ad market on the internet, is a monopoly.
Second, there’s a content monopoly. Content creators effectively give their content to social media companies for free with hopes of acquiring enough popularity that they can arrange their own deals for sponsorships or other schemes for monetization. Meanwhile, the social media company then uses their content to curate a feed which drives ad sales for their platform. This ad money is worth hundreds of billions of dollars per year. Even in cases where the social media platform shares a portion of ad revenue with content creators, it tends to be a small fraction of their ad income.
Different Types of Advertising
On traditional social media, there are various types of advertising, but for now, let’s think about three of them.
Display ads — Probably what we think of first in terms of online ads. They might come up as you’re scrolling through your feed on social media. These are very similar to ads that show up on any random website you might browse. On Facebook for example, the revenue for these types of ads goes entirely to the company. Content creators get zero revenue from these, and this is by far the largest chunk of ad revenue on the platform. These ads make their way to the platform via sophisticated ad markets, highly optimized, and deeply integrated into the social media platform.
Sponsored social media posts — This is a more modern twist designed to help influencers monetize their popularity. Since content creators weren’t given opportunities to monetize their audience within their social media platforms, a new trend began. Popular influencers began making off-platform deals. Basically, a business pays a content creator to post something that promotes their business. The revenue from these sponsored posts usually goes directly to the content creator. These kinds of brand/influencer relationships tend to be arranged on external marketplaces where influencers post their audience demographics, and advertisers can search for their target audience. Advertisers then can reach out to appropriate content creators to propose sponsorship deals. I don’t know of any social media platform with built-in tools for these kinds of deals, but there’s no technical reason to explain why this couldn’t be a sophisticated on-platform ad market.
Video ads — For this type of ad, think YouTube. You’re watching a video, and suddenly a skippable or non-skippable advertisement video plays before you can continue what you were watching. YouTube pays around half of the ad revenue out to content creators in this category, which is notably high in traditional social media platforms.
The lesson to take away from this section is that when traditional social media platforms generate lots of revenue from a particular type of ad, that infrastructure gets heavily invested in, and built deeply into the platform to optimize efficient flow of revenue. When a particular type of ad only benefits content creators, the technical integration is neglected and campaigns must be arranged off-platform.
DeSo’s Vision of Ads
The DeSo view on advertising is discussed in their vision paper, DeSo: The Decentralized Social Network. They mention that traditional social media companies utilize an “outdated ads-driven business model”. They also discuss a possible mechanism for monetization which is basically just sponsored posts arranged in private messaging on platform.
I think there are several opportunities that are far more interesting. First, let’s enumerate why ads-driven business models should be considered outdated. We can probably gain insight into deso.org’s view with the following two statements from their site.
… Meanwhile, the creators who actually produce this content are underpaid, under-engaged, and under-monetized thanks to an outdated ads-driven business model. In addition to all of this, the ads-driven business model also forces social media companies to keep a walled garden around content created on their platforms, preventing external developers from innovating or building apps on top of it, and giving users and creators no choice but to continue using apps that solely they control. — deso.org
and
… This open model for software is already disrupting financial institutions all over the world, from banks to exchanges, and we think, for the first time, this model can be extended to disrupt the social media giants and their outdated ads-driven business models. If we can start putting social media content into a public blockchain, rather than giving it to a handful of private companies to monopolize, we believe we can create an economy of scale around that blockchain that is powerful enough to rival, and ultimately surpass, what the traditional social media giants have created. — deso.org
Right. So, there are definitely some valid problems pointed out here. I would argue that DeSo addresses some of underlying problems, but not others.
Content Monopoly Problem and Solution
Social media companies acquire nearly unlimited free content from creators, and use it to monetize their platform by being the only one’s who can curate a feed with this content plus advertisements, using extremely sophisticated tech. This problem is well-discussed in the vision document from deso.org. DeSo is a great solution for half of this problem. It’s a distributed, free, and open content platform, and anyone is allowed to run a local DeSo node. This enables you to curate your own content feed by pulling content from the open platform. There are already a few popular content feeds based on DeSo content, and this is working very well. But, there’s currently no monetization opportunities discussed, designed, or built into the platform for feed curators. An ad market interface built directly into DeSo would create enormous opportunities for the entire community. This ad revenue stream worth hundreds of billions could be split in some ratio between feed curators and any content creators that appear on the curated feeds. The scale of impact on content creator’s monetization is difficult to overstate here. At some point, likely in the near future, a curated feed node operator is going to build this ad-inclusive feed for themselves. The monetary incentives to do so are simply too great to assume otherwise. We could encourage a more competitive playing field among feed curators if we build an ad market interface into the DeSo platform. This would enable more sophisticated feed curator tech out of the box, and more efficient revenue streams to curators and creators.
Ad Market Monopoly Problem and Solution
This problem is not explicitly discussed in the deso.org vision document. There are a couple blockchain based projects aiming to create a more modern, open, and provably fair ad market with transparency and efficiency far beyond anything that currently exists. Alkimi Exchange is my personal favorite so far if they can deliver. There’s an enormous opportunity to use the DeSo platform to help break this ad-market monopoly using the DeSo platform, while enabling large, new revenue streams flowing to curators and creators. Rather than building a proprietary ad market solution Alkimi and other ad markets build to a common interface that DeSo could support. This would allow simple integration with ad market competitors.
Neglected Sponsored Ads Problem and Solution
I would argue that this is the most technically underdeveloped revenue stream in social media today. Instead of forcing content creators off-platform to try and monetize, DeSo could build a sponsorship market or a sponsorship market interface directly into the platform which would make it simple for content creators to market their audience’s demographics and make bids/offers for sponsorship deals. Any step in this direction would be a game changer.
Low Revenue Stream from Video Ads to Creators
Even though YouTube is considered to have pretty good distribution rates from their video ad revenue streams, we could easily move the goalposts here and set a new standard with far higher distribution rates around 90% instead of 50%. That would be an enormous financial incentive for creators to shift to decentralized social media.
Summary
There’s a huge opportunity to build ad-based features into blockchain based social media in a way that discourages ad market monopolies, and optimizes fair revenue streams to content creators and feed curators. Also, the improved ad revenue streams we can offer would be great leverage to shift creators over from traditional centralized social media. Yes, the centralized social media companies may rely on what could be considered an outdated ads-driven business model, but instead of throwing the baby out with the bathwater, lets make a modern ads-driven business model for creators and curators.
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